Cyprus took the unprecedented step on Monday of closing its banks until Thursday as officials scrambled to renegotiate the terms of a controversial bailout that threatens to force savers to take a â‚¬5.8bn (:£5bn) hit to their deposits.

Finance ministers from the 17-country eurozone held an emergency video conference call and concluded that small depositors should not be hit as hard as others. They said the Cypriot authorities could stagger the deposit seizures, but remained firm in demanding that the overall sum of money raised remained the same. Cyprus state media said accounts with less than â‚¬20,000 may be spared.

…The European Central Bank’s JÃ¶rg Asmussen, who had played a part in negotiating the terms, insisted it was up to Cyprus to alter the way the â‚¬5.8bn was raised from bank accounts. The levy was initially set at 6.75% on accounts under â‚¬100,000 and 9.9% on any deposit above that sum but this could be altered to 3% on the smaller deposits and up to 15% on deposits above â‚¬500,000. In return, savers will be given shares in the banks and, potentially, returns from the country’s gas reserves. “The important thing is that the financial contribution of â‚¬5.8bn remains,” Asmussen said. He also denied responsibility for designing the levy. “I want to emphasise that it wasn’t the ECB that pushed for this special structure of the contribution which has now been chosen,” he said.

Cyprus considered nationalizing pension funds and ordered banks to stay shut till next week to avert financial chaos after it rejected the terms of a European Union bailout and turned to Russia for aid.
Crisis talks among the political leadership in Nicosia are set to resume on Thursday after late-night meetings to discuss a “Plan B” broke up on Wednesday without result.

EU officials voiced frustration but little sympathy for an ambitious but now bust banking system that extended itself well beyond the island; Russia, whose citizens have billions to lose in those Cypriot banks, called the EU a “bull in a china shop”.

People look at a tiny country like Cyprus and think it couldn’t happen here.

Folks, not only could it happen here, it would be much, much worse because unlike Cyprus, we’re too big to bail out. When our backs are up against the wall, nobody will be able to bail us out. So when we get to that point, the pension funds and accumulated wealth of Americans may start looking very tempting to the politicians in D.C.

Sure, it may be illegal for them to seize it and sure, it may be nothing more than theft when you get right down to it, but desperate governments do desperate things. Just ask Cyprus.